Gold Volatility Jumps to Highest Level This Year

In a note to clients this morning, Susquehanna noted that gold volatility reached a new high for 2011:

“Alongside the increase in the price of the metal, we have also seen an increase in implied volatility associated with gold, with the GVXX (Gold VIX) spiking over 7% yesterday to reach its highest level of the year. As such, the cost of hedging a gold position through protective puts has become more formidable.”

The firm went on to say that “For those looking to gold but cautious of all-time high levels and elevated volatility, we recommend taking advantage of the call skew in the GLD by hedging through protective risk reversals, specifically highlighting the October 150/174 collar as a low-cost or zero-cost strategy.”

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